Taming the Beast

John Hoge can thank affiliate marketing for 25% of his Internet business and 90% of his headaches. Hoge, vice president of Sea Eagle, an inflatable-boat maker in Port Jefferson, N.Y., has worked hard to haul his 100-plus marketing affiliates into line. He's ferreted out fraud, designed his own software to monitor click streams, and worked to strengthen his bond with his top performers. "I can complain till I'm blue in the face, but the only way to make this work is to keep after it," he says.

Hoge is part of a new breed of Internet marketers: the control freaks. Affiliate marketing--also known as referral or associate marketing--is one of the oldest tactics of Web-based commerce and has long been almost casual in its arrangement: A merchant pays a commission to another business, or affiliate, for generating clicks, leads, or sales from a graphic or text link on the affiliate's website. For years, the thinking has been that more affiliates means more traffic, and many entrepreneurs have racked up ranks of partners that number into the thousands.

But savvy managers have discovered something: Size isn't everything, and vast networks of affiliates can result in inefficiencies, brand dilution, and even fraud. Hoge, for instance, recently learned that some affiliates had been buying the term "Sea Eagle" on several search engines. As a result, consumers searching for Sea Eagle's site were routed there via the site of the affiliate--which earned a commission when all it did was add an extra click to the shopping process. A furious Hoge told his affiliates to quit it. The move hasn't affected sales, but it has helped Sea Eagle's bottom line by reducing the number of commissions paid.

That's not the only mischief affiliate marketers have had to face. ClubMom Inc., a New York City membership shopping site, once boasted 10,000 affiliates. But in the past year, affiliate manager Shawn Collins has brought that down to 1,000 after an audit turned up too many unscrupulous players. One affiliate, in addition to sending traffic to ClubMom, operated a site that offered pornography--not exactly the family-oriented image ClubMom seeks. Collins also found a number of dummy sites in which hackers were scamming commissions without actually generating sales.

Done well, affiliate marketing is a moneymaker that can generate 10% to 40% of a firm's online sales. A company can build a program from scratch; or, for an investment of $2,000 to $10,000, can purchase software, access to affiliate networks, and even consulting help. A 2003 study by Forrester Research found more than half of online retailers were using affiliate programs--and 99% of them said the tactic was effective at driving sales. That outstrips the approval ratings for e-mail, search marketing, and portal deals.

But such success is most likely to come if you control a wide, far-flung network of affiliates. Collins now carefully screens all new affiliates, conducting telephone interviews, scrutinizing their websites, and weeding out the bad ones. "There are a lot of opportunists out there," he says. "Now I know everyone who is making money off us." Phillip Kidwell manages the affiliate program for eHealthInsurance, based in Sunnyvale, Calif., and he's learned to view his 2,200 affiliates as one big, somewhat unruly sales force--setting quotas, offering bonuses, and running monthly sales contests. The affiliates seem to like the structure: In the last year, customers that come via affiliates are up 200%. That doesn't come as a surprise to Jeff Molander, president of AffTrack, an affiliate-marketing consulting firm in Oak Park, Ill. "Control is the biggest trend now," he says. "Affiliate marketing remains a tried-and-true method of generating sales--if you pay attention to the details."